Deck 7: Master Budget and Flexible Budgeting

Question 1

Managers should consider all of the following in developing a sales budget except:

A)Customer demand.
B)Development of new products.
C)Present and future economic conditions.
D)Plant manager salaries.

Answer 1

D

Question 2

Kerry Kola Company sells Kerry Kola in two sizes: 12 ounce and 32 ounce bottles,at a price of $1.00 and $2.25,respectively.Projected unit sale volumes by region follow: What is Kerry Kola's budgeted sales?

A)$1,643,750
B)$1,425,000
C)$1,362,500
D)$1,581,250

Answer 2

B

Question 3

Which of the following is not an operating budget?

A)Capital projects budget
B)Sales and administrative budget
C)Sales budget
D)Cost of goods sold budget

Answer 3

A

Question 4

Cooper Carriers has budgeted production of 180,000 units this fiscal year.There were 12,000 units on hand in finished goods inventory on January 1 and the company's desired inventory at the end of the year is 15,000 units.Cooper's sales budget in units is:

A)165,000
B)192,000
C)183,000
D)177,000

Question 5

Which of the following is not true about budgeting?

A)It is a formal method of detailed financial planning.
B)It is used to help a company reach long-term and short-term objectives.
C)It aids in the efficient use of resources.
D)All of the above are true.

Question 6

The process of setting unrealistically low budgeting goals in an effort to make only average performance look good is:

A)safe budget
B)normal budget
C)budget cushion
D)budget slack

Question 7

Which of the following represents the correct relationship between budgets and inventories?

A)The direct materials budget includes the budgeted dollar value of the direct materials inventory at the beginning and end of the budget period.
B)The direct materials budget includes the budgeted number of units in the direct materials inventory at the beginning and end of the budget period.
C)The production budget includes the budgeted number of units in the work in process inventory at the beginning and end of the budget period.
D)The direct labor budget includes the budgeted number of units in the work in process inventory at the beginning and end of the budget period.

Question 8

Which of the following is not a requirement of budgeting?

A)Goals must be realistic and possible to attain.
B)There must be accountability for actual results.
C)Management must clearly define its objectives.
D)The budget must not be changed under any circumstances.

Question 9

Budgeting provides the framework for:

A)Process costing.
B)Breaking semivariable costs into their fixed and variable components.
C)Planning and control.
D)Delegating authority to managers.

Question 10

Participative budgeting:

A)Results in managers being less apt to meet or beat their budget projections.
B)Motivates managers to meet budget numbers because they set them.
C)Describes the budget meetings in which managers participate.
D)Leaves room to blame top management in the event budget numbers are not met.

Question 11

Stan is the manager of a division that has been struggling lately.It is budget time and Stan feels he is under the gun to do well next year.As such,he is building slack into his budget.How will he handle estimates of revenues and expenses? Revenues Expenses

A)Overestimate Overestimate
B)Overestimate Underestimate
C)Underestimate Underestimate
D)Underestimate Overestimate

Question 12

The budget should use historical data:

A)Only as a stepping-off point for aiding projections into the future.
B)Because things don't really change.
C)And add a 5% growth factor for each year.
D)Because management is satisfied with historical results.

Question 13

The budget that is used as a basis for preparing all other budgets is the:

A)cost of goods sold budget.
B)production budget.
C)budget balance sheet.
D)sales budget.

Question 14

Scheduling different levels of production each month to maintain a relatively stable inventory could lead to all but:

A)idle production capacity in some months.
B)leasing additional warehouse space to store finished goods.
C)running a second or third shift during some months.
D)inefficiencies from hiring inexperienced workers to meet heavy production schedules.

Question 15

Denny Door Company has budgeted door sales as follows: Finished goods inventory at February 28 will be 7,000 units,but the company is making an effort to reduce inventory and its new policy is that inventory at the end of the month should be 10% of the budgeted sales for the following month.How many units should Denny Door Company produce in March?

A)53,000
B)63,000
C)56,000
D)49,000

Question 16

A budget that adds a new month at the end of the budget when a month is completed,resulting in a budget that is always one year in advance is a:

A)Flexible budget.
B)Static budget.
C)Continuous budget.
D)Capital budget.

Question 17

The format of the direct materials budget is similar to that of the:

A)Factory overhead budget.
B)Sales budget.
C)Production budget.
D)Direct labor budget.

Question 18

Consider the following budgets: (1)Direct materials
(2)Income statement
(3)Production
(4)Cost of goods sold
In what order should these budgets be prepared?

A)2,3,1,4
B)3,4,1,2
C)1,3,4,2
D)3,1,4,2

Question 19

A budget prepared for a single level of volume based on management's best estimate of the level of production and sales for the coming period is a:

A)Flexible budget.
B)Static budget.
C)Continuous budget.
D)Capital budget.

Question 20

Producing goods evenly throughout the year despite having a seasonal sales pattern could lead to:

A)Employee morale issues.
B)High costs for recruiting and training new employees.
C)The potential for inventory obsolescence.
D)Relatively stable inventory levels.

Question 21

Comfy Inc.uses five yards of wool in each blanket it produces.Comfy's production budget next year is 30,000 blankets.The anticipated wool inventory at January 1 is 30,000 yards,but the company desires to reduce the inventory to 20,000 yards by the end of the year.Each yard of wool costs $10.How many yards of wool should Comfy purchase?

A)200,000 yards
B)140,000 yards
C)170,000 yards
D)1,400,000 yards

Question 22

Quinn Company's master budget called for 30,000 units of production.Budgeted direct material costs at this level were $450,000 or $15 per unit.Quinn actually produced 32,000 units and incurred direct material costs of $496,000.Quinn uses flexible budgeting to evaluate variances and determined that there was a $16,000 unfavorable direct materials variance.All of the following reasons could have contributed to the flexible budget variance except:

A)Quinn produced more than the master budget called for.
B)Quinn did a poor job of controlling the purchase cost of the raw materials.
C)Quinn did a poor job of controlling the quantity of the direct materials used in the production process.
D)None of these is correct.

Question 23

Consider the flexible budget information relating to direct labor costs for Logan Ltd.: Logan's actual production was 51,000 units and the related cost was $205,500.What is the direct labor variance?

A)$1,500 unfavorable
B)$5,500 unfavorable
C)$2,500 favorable
D)$1,500 favorable

Question 24

The absolute maximum number of units that would be possible under the best conceivable operating conditions is a description of which type of manufacturing capacity?

A)Practical
B)Theoretical
C)Currently attainable (expected)
D)Normal

Question 25

Budgeted inventories for the Remle Company follow: Additional budget information follows: Calculate the budgeted cost of goods sold.

A)$352,800
B)$350,400
C)$361,000
D)$359,300

Question 26

Lunchco Inc.produces picnic tables in a two-step process.Pretreated wood is cut in the Cutting Department and then the lumber is assembled into tables in the Assembly Department.It takes 30 minutes of direct labor time to cut the lumber and the standard hourly labor rate in the Cutting Department is $12.The tables take one hour to assemble and the standard hourly rate in the Assembly Department is $10.If Lunchco's production budget is 20,000,what is the company's direct labor budget?

A)$340,000
B)$320,000
C)$270,000
D)$260,000

Question 27

Which of the following budgets is used to provide an "apples to apples" comparison of budgeted and actual performance at the actual unit volume attained?

A)Continuous budget
B)Flexible budget
C)Master budget
D)Static budget

Question 28

When preparing the flexible budget for factory overhead,variable costs may include all but the following:

A)insurance
B)shop supplies
C)electricity to run the machines
D)repair costs

Question 29

Julia Industries produces cookware.The master budget called for production of 75,000 units this year.The budget at that level of production follows: Due to the popularity of cooking shows on television,Julia Industries now estimates sales will be 80,000 units.What is budgeted operating income at this level?

A)$185,000
B)$160,000
C)$230,000
D)$167,500

Question 30

Information from the operating budgets of Roswell Fabricators follows: If Northwest's income tax rate is 30%,what is the budgeted net income?

A)$287,000
B)$126,000
C)$410,000
D)$186,000

Question 31

Amounts from all of the following budgets feed into the pro-forma income statement except the:

A)Cash budget.
B)Factory overhead budget.
C)Direct materials budget.
D)Sales budget.

Question 32

Which of the following is not considered when preparing the cost of goods sold budget?

A)Budgeted factory overhead.
B)Budgeted dollar value of finished goods inventory at the end of the period.
C)Budgeted sales dollars.
D)Budgeted dollar value of work-in-process inventory at the beginning of the year.

Question 33

Allen Company's master budget called for 50,000 units of production.Budgeted direct material costs at this level were $450,000 or $9 per unit.Allen actually produced 54,000 units and incurred direct material costs of $496,000. What is Allen's direct material variance using flexible budgeting?

A)$10,000 U
B)$46,000 U
C)$36,000 U
D)$10,000 F

Question 34

The purpose of a flexible budget is to:

A)Compare actual and budgeted results at virtually any level of production.
B)Eliminate cyclical fluctuations in production reports by ignoring variable costs.
C)Allow management some latitude in meeting goals.
D)Reduce the total time in preparing the annual budget.

Question 35

Consider the following about Taylor Corporation: Assuming Taylor Corporation uses flexible budgeting,what is the direct materials variance?

A)$20,000 favorable
B)$40,000 unfavorable
C)$20,000 unfavorable
D)$28,000 unfavorable

Question 36

Flexible budgeting is a reporting system wherein the:

A)Statements included in the budget report vary from period to period.
B)Budget standards may be adjusted at will.
C)Reporting dates vary according to the levels of activity reported upon.
D)Planned level of activity is adjusted to the actual level of activity before the budget comparison report is prepared.

Question 37

Darla Draperies manufactures top of the line window treatments.A standard package involves 18 yard of decorative fabric costing $5.00 per yard.Darla has 10,000 yards of fabric on hand at the beginning of the month,but management would like to reduce inventory levels,so it would like to have 8,000 yards on hand at the end of the month. If Darla's production budget is 3,000 packages,what should the company's direct materials budget be?

A)$280,000
B)$270,000
C)$260,000
D)$268,000

Question 38

A plan for timing acquisitions of buildings,equipment or other significant assets is a(n):

A)budget balance sheet.
B)capital expenditures budget.
C)asset budget.
D)cash budget.

Question 39

A summary of Jacob Company's flexible budget of manufacturing costs follows: What would the flexible budget of manufacturing costs be at a production volume of 18,000 units?

A)$144,000
B)$172,800
C)$192,000
D)$176,000

Question 40

Chase Company's production budget is as follows: Each unit takes 30 minutes to produce and the standard labor rate is $18 per labor hour.What is Chase's direct labor budget?

A)$2,880,000
B)$2,700,000
C)$10,800,000
D)$5,760,000

Question 41

Kircher Clothing,Inc.manufactures two styles of jackets: standard,which sell for $45,and waterproof,which sell for $60.The jackets are sold in three regions: East,West and North.Waterproof jackets account for 20% of the sales in the East Region,25% in the West Region and 30% in the North Region.Forecasted total sales next year are 35,000,30,000 and 50,000 in the East,West and North Regions,respectively.
​
Prepare a sales budget for Kircher Clothing,Inc.for next year.

Question 42

The following information is from Franklin Industries master budget for the current year: Prepare flexible budgets for the production and sale of 14,000,15,000 and 16,000 units,respectively.

Question 43

Pinecroft Company manufactures one product that requires 4 hours of machining direct labor and 3 hours of assembly direct labor.The standard labor rate is $20.00 per direct labor hour in the Machining Department and $16.00 per direct labor hour in the Assembly Department.The product has forecasted sales of 3,000 units in July.The estimated finished goods inventory at July 1 is 300 units and the desired ending inventory at July 31 is 400 units.
​
(1)Prepare a production budget for the month of July.
(2)Prepare a direct labor budget for the month of July.

Question 44

Logan Lighting,a manufacturer of light fixtures,has the following budgeted expenses for the year: Prepare a selling and administrative expense budget for the year.

Question 45

Wernke Company has the following totals from its operating budgets for November: Prepare a budgeted income statement for the month of November assuming a 30% income tax rate.

Question 46

Jasinski Jewelry produces a component for lapel pins.Budgeted production in April is 8,400 units.Each unit requires 1/3 ounce of gold,and 2 hours of direct labor time.It is estimated that Jasinski will have 100 ounces of gold on hand at April 1,and since management anticipates an increase in the price of gold in the coming months,the desired ending inventory at the end of April is 150 ounces.The standard cost of an ounce of gold is $300.The standard rate for direct labor is $25 per hour.
​
(1)Prepare a direct materials budget.
(2)Prepare a direct labor budget.

Question 47

The level of production that provides complete utilization of all facilities and personnel,but allows for some idle capacity due to operating interruptions such as machinery breakdowns,idle time and other inescapable inefficiencies is:

A)practical capacity.
B)theoretical capacity.
C)budgeted capacity.
D)normal capacity.

Question 48

Delaney Company has the following flexible budget formulas and amounts: Actual results for the month of October for the production and sale of 48,000 units were as follows: Prepare a performance report for the month of October.

Question 49

The normal capacity of Noel Company is 4,000 units per month.At this volume,budgeted fixed and variable factory overhead are $16,000 and $20,000,respectively.In May,actual production was 4,200 units and actual overhead incurred was $37,900. What was the amount of factory overhead allowed for the actual level of production in May?

A)$36,000
B)$36,800
C)$37,000
D)$37,800

Question 50

Prepare a cost of goods sold budget for the KAS Company for the upcoming year from the following estimates:
Inventories: Totals from other budgets:

Question 51

Bradley Company has forecasted sales for the month of March for its single product to be 10,000 in its Columbus Region,13,000 units in its Cincinnati Region and 15,000 units in its Cleveland Region.The estimated inventory on March 1 is 4,500 units and the company desires to have 3,800 units on hand March 31.The budgeted sales price is $52.00 per unit.
​
(1)Prepare a sales budget for the month of March.
(2)Prepare a production budget for the month of March.

Question 52

The standard capacity of a factory is 9,000 units per month.Cost and production data follow: What is the amount of overhead allowed for the actual volume of production?

A)$22,000
B)$22,400
C)$22,500
D)$22,700

Question 53

The normal capacity of Noel Company is 4,000 units per month.At this volume,budgeted fixed and variable factory overhead are $16,000 and $20,000,respectively.In May,actual production was 4,200 units and actual overhead incurred was $37,900. What is the variance between budgeted factory overhead per the flexible budget and actual overhead incurred?

A)$1,900 U
B)$1,000 U
C)$900 U
D)$100 U

Question 54

It is important that a standard rate rather than actual expenses be used to charge service department costs to producing departments so that:

A)production department managers know the amount of usage at the beginning of the year.
B)extra costs resulting from inefficient operations in service departments cannot be passed on to the production departments.
C)service department managers don't need to worry about meeting their budgets.
D)extra costs resulting from inefficient operations in production departments can not be passed on to the service departments.

Question 55

The level of production that is used by most firms for budget development because it represents a logical balance between maximum production capacity and the capacity demanded by actual sales volume is:

A)practical capacity.
B)theoretical capacity.
C)budgeted capacity.
D)normal capacity.

Question 56

Shaw Corporation has developed the following flexible budget formula for annual indirect labor cost: ​
Total costs = $9,600 + $0.50 per machine hour
​
Operating budgets for the current month are based upon 30,000 hours of planned machine time.Indirect labor costs included in this planning budget are:

A)$15,800.
B)$15,000.
C)$24,600.
D)$2,460.

Question 57

The normal capacity of Yule Company is 5,000 units per month.At this volume,budgeted fixed and variable factory overhead are $25,000 and $20,000,respectively.In December,actual production was 4,800 units and actual overhead incurred was $46,300. What is the factory overhead application rate at the actual level of production (rounded to the nearest penny)?

A)$9.00
B)$9.21
C)$8.80
D)$9.26

Question 58

Which of the following is not true regarding service department expenses?

A)Preparing a budget for a service department requires the same procedures as those used for production departments.
B)Expenses of the service departments are allocated to production departments using a standard application rate.
C)Production departments will consider allocated service department expenses in developing their budgets.
D)Variances are not computed for expenses in service departments.

Question 59

O'Reilly Outfitters Inc.has forecasted sales of 32,000 tents for the upcoming year.The anticipated finished goods inventory at January 1 is 5,000 units,but management desires this inventory level to be reduced by 20% on December 31.
Two materials are used in the production of tents: 36 square yards of nylon having a standard cost of $2.00 per yard,and 20 feet of metal tubing having a standard cost of $.50 per linear foot.Raw material inventory information is as follows: (1)Prepare a production budget for the upcoming year.
(2)Prepare a direct materials budget for the upcoming year.

Question 60

When using a flexible budget,what occurs to fixed costs (on a per unit basis)as production increases?

A)Fixed costs are not considered in flexible budgeting.
B)Fixed costs per unit will decrease.
C)Fixed costs per unit will remain unchanged.
D)Fixed costs per unit will increase.

Question 61

The following information is from Devon Manufacturing master budget for the current year: Devon actually produced 33,000 units.The company's actual results are presented below: Prepare a performance report for the year.

Question 62

The standard annual capacity of Jones and Smith Company is 25,000 units per month.Two units can be machined in one hour.The flexible budget for factory overhead at this volume follows: In June,actual production was 22,000 units and actual factory overhead incurred was $258,000.
(1)Calculate the standard application rates for fixed and variable overhead at the standard level of volume in relation to units and machine hours.
(2)Calculate the amount of factory overhead allowed for the actual volume of production in June and the variance between the actual and budgeted factory overhead.

Question 63

The November monthly factory overhead cost budget for Brass Ltd.at normal capacity of 10,000 units or 5,000 direct labor hours follows: ​
(1)Prepare a flexible budget for 80%,100% and 120% of normal capacity.
(2)Determine the rate for application of factory overhead to work in process at each level of volume in relation to both units and direct labor hours.